Exercise 5-11 Variable consideration – expected value; change in estimate [LO5-3, 5-6]
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Rocky Guide Service provides guided 1?5 day hiking tours throughout the Rocky Mountains. Wilderness Tours hires Rocky to lead various tours that Wilderness sells. Rocky receives $1,100 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $110 bonus per tour day it guided during the previous month if its service during that month received an average evaluation of “excellent” by Wilderness customers. The $1,100 per day and any bonus due are paid in one lump payment shortly after the end of each month. |
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On July 1, based on prior experience, Rocky estimated that there is a 20% chance that it will earn the bonus for July tours. It guided a total of 10 days from July 1?July 15. |
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On July 16, based on Rocky?s view that it had provided excellent service during the first part of the month, Rocky revised its estimate to an 70% chance it would earn the bonus for July tours. Rocky also guided customers for 15 days from July 16?July 31. |
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On August 5 Rocky learned that it did not receive an average evaluation of ?excellent? for its July tours, so it would not receive any bonus for July, and received all payment due for the July tours. |
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| Rocky bases estimates of variable consideration on the expected value it expects to receive. |
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| Required: |
| 1. to 3. |
Prepare the journal entries to record the transactions above. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.) |